Six years after the COVID-19 pandemic, Americans still feel gloomy, and no once-a-month economic report seems to make them happy.
The economy and job market have recovered, but consumer sentiment hasn’t. Sentiment has ebbed and flowed over the past six years without returning to pre-pandemic levels, University of Michigan Consumer Sentiment Index data shows. The Conference Board’s Consumer Confidence Index also dropped in September.
The gap between how people feel and the ongoing strength of spending and the economy is a unique post-pandemic phenomenon economists can’t quite explain. Historically, consumer sentiment has been a fairly reliable leading indicator of where the economy is headed: If consumers feel confident and optimistic, they’ll spend more. If not, they may pull back, and the economy could enter a soft patch. Consumer spending accounts for about 70% of the U.S. economy.
Although Americans and the media spend much time lamenting consumer malaise and its roots, economists and some policymakers are moving on.
“From our perspective at the Chicago Fed, we were interested in consumer sentiment for a narrow reason, which is it was a good leading indicator of consumer spending,” Chicago Federal Reserve President Austan Goolsbee told journalists at an event discussing the disconnect. “And over the last six years, it has become a much less good leading indicator of consumer spending.”
What Economists Are Watching Instead
When subjective measures such as consumer sentiment stray from their historic roles, Chicago Fed economists rely more on quantifiable statistics such as inflation, spending, hiring and economic growth to make forecasts, Goolsbee said.
Recent statistics show that the economy and consumers, despite persistent gloom, remain resilient. The Fed’s preferred inflation gauge, the personal consumption expenditures price index, showed price increases stabilizing while consumers continued to spend heavily.
Consumer spending in August surged 0.9% from July. It wasn’t just because people paid higher prices or had to buy essentials: Adjusted for inflation, spending grew 0.6%, its strongest monthly gain since March 2025.
“Americans are still ramping up their discretionary spending across both goods and services, suggesting consumers are increasing their spending because they want to and not because they have to,” Bank of America said last month in an analysis of its customers’ card spending.
The Labor Department’s monthly jobs report showed September payroll growth softened and wages didn’t keep up with inflation. Economists said the numbers reflected a “low hire, low fire” situation rather than a wave of layoffs.
“Companies are not adding many people, and they are not laying many off either,” said Ken Mahoney, chief executive at Mahoney Asset Management. “A lot of firms already right-sized earlier, and AI may be taking a little of the edge off new hiring, but this is not a wave of firings. The 12-month average gain going into this report was only about 45,000 jobs a month, so September fits a slow trend more than a break in the economy.”
Does Consumer Gloom Still Matter?
Consumer sentiment is less useful as a leading indicator for spending and Fed decisions today, but researchers at the event said a deeper look at the data could help.
Surveys often report the median, or the precise halfway point of all responses, but researchers said the distributions may reveal more. Looking across all responses can show patterns at the extremes that a median hides.
For instance, a distribution could reveal whether a small group is responsible for most consumer spending. That information could be useful, researchers said.
“If we got into a world where 90% of the spending was done by 10% of people, we have to think about what does it mean for overall GDP (gross domestic product) growth and what is it going to mean for overall employment,” Goolsbee said.
Goolsbee is also interested in looking more closely at parts of consumer sentiment surveys, such as inflation expectations.
“There are some measures of expectations in those data, and let’s expand out some of those measures as being, perhaps, better indicators of where we are in the business cycle than just sentiment,” he said.
Jerome Powell, the last Federal Reserve chairman, often emphasized the importance of keeping long-term inflation expectations “well anchored.”
While Goolsbee said he prefers financial market-based measures of inflation expectations, such as signals from Treasury yields, he said some economists argue that survey-based expectations are better.
“I put out the call for research” on that, Goolsbee said. “Tell me if that’s a good measure.”
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